Adding calf value

New Iowa State study reveals pharmaceuticals’ impact is $266/head at the ranch

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What do pharmaceutical technologies – such as parasite control products, growth implants, subtherapeutic antibiotics, and ionophores – mean to the bottom line of cow-calf, stocker and feedlot operations? Iowa State University economists estimate the cost savings to producers is $433/head over the life of an animal.

Specifically, they report that using these pharmaceutical technologies at the cowherd level produces a $226/head cost savings, an $81/head cost savings at the stocker level, and a $126 advantage in feedlots – which totals $433/head overall.

Put another way, “If produce natural beef and gave up these technologies, you’d need to get over $400/head on the revenue end to make up for the lost performance,” says John Lawrence, a well-known professor of livestock economics at Iowa State University and director of the Iowa Beef Center.

Lawrence and fellow Iowa State economist Maro Ibarburu conducted the research project entitled, “Economic Analysis Of Pharmaceutical Technologies In Modern Beef Production,” through a grant from the Growth Enhancement Technology Information Taskforce, an organization of animal health companys committed to providing educational materials to the beef industry.

The purpose of the study was to evaluate the overall value of pharmaceutical technologies by estimating the cost of eliminating their use in each production segment (cow-calf, stocker and feedlots). The five pharmaceutical technologies examined were parasite control, growth promotant implants, subtherapeutic antibiotics, ionophores and beta agonists.

Because these technologies are not used by everyone industry-wide, Lawrence says the impact to the industry nationally is a little lower than the $433. The national average is estimated at $366 cost savings per head over the lifetime of a beef animal if the five pharmaceutical technologies are adopted.

Performance data from more than 170 university studies conducted over the past 20-25 years for each of the technologies were combined using meta-analysis. And the performance results were converted to their dollar impact using budget data from 10 universities in various regions of the U.S.

For the economic analysis, the Iowa researchers simulated a ban on the five pharmaceutical technologies occurring in 2000, then extrapolated results out over five years to determine the effect on the market. Results were analyzed using the Food and Agricultural Policy Research Institute (FAPRI) model of U.S. agriculture to estimate the impact on beef production, price and trade if these technologies weren’t available. The researchers concluded there would be:

- a 14% smaller calf crop on the same number of cows,

- an 18% reduction in total beef produced as steer/heifer slaughter would be reduced by 16.5%,

- an increase in net beef imports of over 2 billion pounds to make up for the domestic production shortfall, and beef exports would decline

- a 13.5% increase in retail beef prices, and an 8.5% decline in retail beef consumption.

While cattle prices would increase in such a scenario – their model predicted an increase in fed cattle of about 20% and a 25% price increase for cull cows. However, the pace would not cover the added costs of production, the researchers say.

As a result, the researchers say if a ban on the technologies existed, the industry would adjust with a cow-calf return $5/head lower than the level before the ban. They also say selling prices would have to increase significantly to cover the increase in costs – by as much as 36%.

The Iowa researchers conclude in their report that “Packers and feedlots would adjust to maintain operating margins similar to current levels resulting in lower returns to beef cow herds and a smaller feedlot and packing industry.” And pork and poultry production would expand to fill the void for domestic and export customers.

Of the findings, Lawrence says, “These pharmaceutical technologies are used with good reason to put money in beef producers’ pockets. Natural beef is becoming popular, popular, but without use of these animal health products, costs would go up. So it is important to understand the value of these technologies and communicate that to consumers and producers.”